No chicken, no cafes: Egyp­tians scrimp as prices leap

Kuwait Times - - BUSINESS -

Money had al­ready been tight as food and elec­tric­ity bills climbed for weeks. So Ashraf Mahrous, a 45-year-old civil ser­vant, warned his wife, “Black days are ahead,” when Egypt floated its pound and hiked fuel prices this month. Mahrous is now look­ing for a side job. Ris­ing in­fla­tion has forced him to stop eat­ing chicken and bor­row cash from friends to make ends meet. He also gave up his reg­u­lar evening cafe vis­its and slashed his son’s al­lowance. “We can no longer sur­vive on my salary,” Mahrous, a father of two, said. “The sit­u­a­tion is very, very, very dif­fi­cult.”

Struggling to cope with price in­creases, some Egyp­tians are scrimp­ing on meals, buy­ing used clothes or con­sid­er­ing mov­ing their chil­dren to cheaper schools. Even the bet­ter off are feel­ing the pinch. And more price jumps are likely amid a slew of eco­nomic de­ci­sions de­signed to re­vive a bat­tered econ­omy, lure back in­vestors and end a dol­lar crunch. Egypt re­cently took what many economists say is the nec­es­sary step of float­ing its pound and cut­ting fuel sub­si­dies as it sealed a $12 bil­lion loan deal with the In­ter­na­tional Mon­e­tary Fund.

Pound loses value

The Egyp­tian pound quickly lost about half its value, plung­ing to around 18 to the dol­lar, in a coun­try heav­ily de­pen­dent on im­ports rang­ing from food items to raw ma­te­ri­als. With salaries re­main­ing largely the same, nearly ev­ery­one in the al­ready deeply im­pov­er­ished coun­try ef­fec­tively had a sud­den, large pay cut. Mul­ti­ple pre­vi­ous gov­ern­ments had balked at such moves for fear of stok­ing un­rest. The de­val­u­a­tion came after other steps that in­creased prices - the in­tro­duc­tion of a value-added tax and hike in house­hold elec­tric­ity prices.

Even be­fore the pound plunge, in­fla­tion had stood at 13.6 per­cent in Oc­to­ber. A hard cur­rency crisis led to short­ages in medicines and ba­sic sta­ples like sugar. Un­rest and un­cer­tainty after Egypt’s 2011 up­ris­ing has hurt tourism and de­terred for­eign in­vestors. “Egyp­tians are in for a tough time over the next year,” said Ja­son Tu­vey, Mid­dle East economist at Cap­i­tal Eco­nomics who ex­pects in­fla­tion to peak at more than 20 per­cent in the mid­dle of next year. While the re­cent de­ci­sions “should ul­ti­mately lay the foun­da­tions for a pe­riod of stronger eco­nomic growth,” it will take time be­fore such ben­e­fits can be reaped, he said.

Mo­hamed Abu Basha, se­nior economist at in­vest­ment bank EFG-Her­mes, said he ex­pects in­fla­tion to av­er­age 18.5 per­cent in the fis­cal year that ends in July 2017, reach­ing the high­est an­nual av­er­age since at least 2008. The first signs of re­lief aren’t likely be­fore mid-2017, he said. After that, eco­nomic re­cov­ery may start as for­eign cur­rency short­ages ease and in­vest­ment picks up, he said. Fi­nance Min­is­ter Amr el-Garhy said in­fla­tion was ex­pected to ease to around 10 per­cent dur­ing the se­cond half of 2017, ac­cord­ing to the state-run news agency.

Tu­vey pre­dicts in­fla­tion won’t fall back to sin­gle dig­its un­til near the end of 2018, and it could take even longer be­fore Egyp­tians see the re­wards for their sac­ri­fices in the form of more jobs and wage growth. In­vestors want to see more changes to im­prove the business en­vi­ron­ment, he said. “Egypt has all the in­gre­di­ents to be­come a man­u­fac­tur­ing hub,” he said. “To the ex­tent that a weaker pound and eco­nomic re­forms could spark a move in that direc­tion, we’d cer­tainly see job prospects stem from prospects of growth, and wages as well should pick up.”

Un­til then, of­fi­cials have coun­seled pa­tience and promised to pro­tect the need­i­est. In a bid to soften the blow, the cen­tral bank raised its key in­ter­est rates by three per­cent­age points this month and the army is hand­ing out mil­lions of food parcels at dis­counted prices. Th­ese ef­forts pro­vide lit­tle con­so­la­tion to Mahrous, who said his daily trans­porta­tion costs have in­creased after the fuel sub­sidy cuts. Food eats up the largest chunk of his salary of 1,300 pounds a month, he said. — AP

PELALAWAN, In­done­sia: A girl pushes a cart while work­ing at a palm oil plan­ta­tion area in Pelalawan, Riau province in In­done­sia’s Su­ma­tra is­land. — AFP

CAIRO: Egyp­tians carry their chil­dren as they shop at a pop­u­lar mar­ket in Cairo, Egypt. — AP

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